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Monthly Archives: April 2013

WSJ – How Entrepreneurs Come Up With Great Ideas

How Entrepreneurs Come Up With Great Ideas

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Loooong view of 10 year UST rates.  I remember thinking the bond rally was over during the great railroad strike of 1877, nearly lost my tunic.  Luckily I went short USTs around WWII and made it all back and then some.  Patience is key.

Seriously though, interesting chart.  They say finance has the shortest memory of any discipline…

Found via CSInvesting

Senators Sherrod Brown (D, Ohio) and David Vitter (R, Louisiana) have a good op-ed in the NYT from yesterday: Make Wall Street Choose: Go Small or Go Home

Yesterday they introduced legislation that aims to end too big to fail and level the playing field for banks, big and small, by requiring sufficient capital reserves.  What a revolutionary notion…

I really hope this is genuinely good legislation that isn’t overly complex or loaded with loop holes.  Even if it is good legislation it’ll be tough to overcome Wall Street’s influence over congress.  I’m hopeful but not holding my breath.

Some excerpts:

Today, the nation’s four largest banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — are nearly $2 trillion larger than they were before the crisis, with a greater market share than ever. And the federal help continues — not as direct bailouts, but in the form of an implicit government guarantee. The market knows that the government won’t allow these institutions to fail.

It’s the ultimate insurance policy — one with no coverage limits or premiums.

These institutions can then borrow and lend money at a lower rate than regional banks, Main Street savings and loan institutions, and credit unions.

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Unfortunately, existing capital rules are insufficient to prevent another crisis and are either too complex to administer or too easy to manipulate.

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Our bill aims to end the corporate welfare enjoyed by Wall Street banks, by setting reasonable capital standards that would vary depending on the size and complexity of the institution.

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Our proposal also curtails the expansion of the government safety net for Wall Street by limiting taxpayer support to traditional banking operations. Under our legislation, financial institutions would be prohibited from transferring nonbank liabilities — like derivatives, repurchase agreements and securities lending — into federally supported banks that benefit from deposit insurance. This would ensure that the government safety net protects only the commercial bank, not the risky investment-banking arms of the megabanks. If the megabanks want to remain large and complex, that’s their choice — but Americans should not have to subsidize their risk-taking. If they fail, their executives and investors — not taxpayers — should pay the price.

It’s amazing the things a low interest rate environment will make you do… including lend money to Italy and Spain for ten years at ~4%.

WSJ: European Bonds Are Defying Gravity

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The bond markets and the economies of Europe’s struggling countries tell two very different stories this year: One is rallying; the other, sinking.

Bulls say the ECB’s intervention has significantly reduced the risk that Italy or Spain could default on its debts. Nick Gartside, international chief investment officer for fixed income at J.P. Morgan Asset Management, says the ECB’s pledges “provide a sort of cloak of certainty and a very important foundation.”

Others are less sanguine. “The markets are overestimating the capacity of the European Central Bank to intervene in case of need,” said Roberto Perotti, an economist at Bocconi University in Milan. He argues that Italy is essentially too big to save, even by the ECB, if it ran seriously aground.

And Italy’s weak economy raises its risk: Without economic growth, it is difficult to contain Italy’s huge public debt—the second-largest as a proportion of GDP in the euro zone, after Greece.

From Hussman’s The Endgame is Forced Liquidation

Rule o’ Thumb: When the cover of a major financial magazine features a cartoon of a bull leaping through the air on a pogo stick, it’s probably about time to cash in the chips.

Dr. Hussman goes on to warn that margin debt is nearing its 2007 high which is in turn adding fuel to the bull market fire.  A bull market built on borrowed money has a tendency to turn on a dime and force liquidation of leveraged positions – and that, in Hussman’s eyes, is the end game.

Editor’s note: I am going to make a concerted effort to provide some sources other than Hussman as this blog is starting to feel like his fan club.  No promises though – lately no one’s arguments have really resonated with me and I’m not going to just repost Bill Gross’ tweets.